Hi Everyone,
I am a stay at home Mum and still owe 80K on my PPOR. It needs major renos or even a knock down rebuild.
I also have an IP I bought 4 years ago in my name only. It has increased 120K. Financially I am fine to hold onto both. However the IP has no income to claim against now that I am not working and therefore doesn't have the same cash flow. So it will take me longer to pay out my PPOR. I plan not to return to work. If I decided to sell my IP (to pay out my PPOR) would I still have to pay capital gains tax even when I dont have an income?I guess what I am wondering is would it be better to sell my IP to pay out and improve my PPOR, then start my investments again or just to keep my IP plodding along?
Thanks
Just to answer your Capital Gains question, the answer is yes, you would still pay CGT even though you aren't working. But the good news is, you pay CGT at your normal marginal rate, so your marginal rate will be lower than if you had other income.
Hi, Coco
If you keep both your PPOR and IP, you will have 2 properties that can appreciate, whereas when you sell, you surrender all future capital gains. Also, if your loan-value-ratio for your IP is below 80%, you can refinance it every few years to provide you with a source of income, as long as your IP keeps appreciating.
Have you considered renovating your IP to increase its rental income?
Regards
DanielThanks Dan42 and Danielle.
No I dont think the IP needs renos, it's relatively new, however I could do some small things to increase the rent (like aircon). Yes my thoughts always come back to my IP being used to help leverage into more property. I guess I really want my PPOR paid out so that I can get stuck into paying for the IP. However with my PPOR really needing work done (or even a re-build) this puts me back many years.
It can be a good idea to sell sometimes if you can pay down private debt. But the ideal is to repurchase another property to replace it.
Just think if you sold, how much would the CGT be? If a $120,000 gain, then this figure would have stamp duty and other buying/selling costs taken off . say $15k. gain is now $105,000. You could then get the 50% discount and the gain becomes $52,500. This figure is then added to your other income. if you have nil. then you will pay tax on $52,500. This may end up being around $10k. very rough figures
Now you also have a $80k loan. Interest on this would be around $4000 per year.
So you basically are spending $10,000 to save $4k per year.
But you probably should also factor in other things too. ie you will have about $30k cash left over. You can invest this.
And, if you go back into property again you will also need to consider paying stamp duty on the new purchase, legals etc.
And also, if you are not working now it may be impossible to get a loan to get a new property.Many things to consider.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Also forgot – probably now is not a good time to sell if the area your property is in is down. maybe wait a bit?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terryw, that is very helpful. More food for thought, will go away to chew now.
Hi, can you rebuild 2 on your PPOR block? If not, can you reno/extend and put a unit onto existing structure so that you have a large section of your current block to live in and an additional smaller unit to rent out for income?
You can then borrow off your current IP to do all of the above. However, number crunching is essential.
Good luck,
KY
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